Combined ratio has got worse in each of the past five years

Actuary EMB has warned that the Lloyd’s Aggregate Accounts for 2009 show that, excluding major losses, the market’s combined ratio has worsened in each of the past five years from 81% in 2005 to just under 90% in 2009.

EMB Partner, Raj Ahuja, said: “The senior Lloyd’s management was clearly right to laud the overall results but to sound a note of caution at the same time. The underlying performance issues we are highlighting reinforce their call for pricing discipline in this and future years.”

He said this is particularly the case because recessionary and capacity pressures will make price hikes difficult. First quarter catastrophes, particularly the recent Chilean earthquake, may help that.

Economy

Ahuja said: “The economic situation means that many Lloyd’s clients can’t afford increases in their insurance costs and will push hard for the best prices.

“Since many businesses are shedding offices, factories and people to weather the recession, there is potentially a diminishing amount surrounding renewal business.”

With gross written premium, excluding currency movements, in Lloyd’s having increased by nearly £1.5bn in 2009, Ahuja says there is a lot of capital chasing business. “Any temptation to undercut prices will only put further pressure on margins,” he said.

Benchmarking

“The market still has some strides to make in understanding benchmark loss costs. Greater consistency in this area is fundamental to the future health of Lloyd’s,” warned Ahuja.